Monday, April 23, 2012

Over
the past few months, we have been getting conflicting economic data about the
real "state of the Union". One week, employment data looks to
be improving and then next it appears to look like things are getting worse. Housing
data looks better one month and looks worse the next. One statistic that
is not widely reported is the data on the Supplemental Nutritional Assistance
Program (SNAP), better known to most of us as food stamps. Recently, the
Congressional Budget Office (CBO) published its fiscal 2011 review of SNAP, data that provides us with
a very succinct view of the American economy and where the CBO thinks it is
headed.

The Supplemental
Nutritional Assistance Program provides benefits for low income families to help them with
their food purchases. Households must meet certain eligibility standards to qualify for assistance; they
cannot have more than $2000 in countable financial resources (i.e. bank
accounts and other cash-type investments) or $3250 if one person is aged 60 or
more or is disabled. Homes and lots are not included as part of a
households assets nor are pension plan payments.

Here
is a chart showing SNAP income qualification levels based on household size:

Deductions
from total household income are allowed; these include a standard 20 percent
deduction from earned income, a dependent care deduction, medical care
expenses, child support payments and, in some states, a set amount of $143 is
allowed for shelter costs for homeless Americans.

Here
is a chart showing the maximum monthly SNAP allotment based on household size
and and explanation showing how benefits are calculated:

Able-bodied
adults between the ages of 16 and 60 must register for work, accept work and
take part in employment and training programs when referred. Failure to
do so may result in disqualification from SNAP.

Despite
the fact that the American economy is into its third year of a so-called
"recovery", it's interesting to note that SNAP had a record-breaking
year (and not in a good way) as shown on these graphs:

In
fiscal 2011, the federal government spent a total of $78 billion on SNAP. Participation
in the program as a measure of total number of participants and the share of
the U.S. population reached a record high with 45 million participants or one
in seven Americans receiving SNAP benefits.The number of beneficiaries rose by
50 percent in the five years between fiscal 2001 and 2005 and even faster in
the five years between fiscal 2007 and 2011 when it rose by 70 percent. About 65 percent of the
growth in SNAP spending in the last five fiscal years was due to weakness in
the economy as the Great Recession took hold. An additional 20 percent of the
spending growth was due to the imposition of temporarily higher benefit amounts
enacted as part of the American Recovery and Reinvestment Act. The
remaining 20 percent of spending growth was due to higher food prices and lower
income among beneficiaries which also acts to boost the supplement as shown in
the chart above.

The
average American household that receives SNAP benefits consists of 2.2 people
with about half of all households consisting of a single person. Three
quarters of all households receiving benefits included a child, a person over
the age of 60 or a disabled person. Most people receiving SNAP benefits
live in households with very low income; in fiscal 2010, 85 percent of
households receiving benefits had income below the national poverty guideline
of $18,500 for a household consisting of three persons. The average
household income for beneficiaries in 2010 was $8800 per year or $731 per month
with SNAP benefits averaging $287 per month or $4.30 per day as shown on this
chart:

The
number of SNAP beneficiaries varies with economic conditions. As the U.S.
economy heads into a recessional downturn, the number of SNAP recipients rises
in tandem with rising unemployment rates. As the economy improves, the
number of beneficiaries gradually decreases but it can take several years for
the number of beneficiaries to drop to pre-recession rates as shown on this
graph:

Note
that after the recession in the early 1990s, the number of SNAP participants
rose for a full three years after the end of the official recession. As
well, the number of SNAP participants continued to climb after the end of the
recession in 2001, reaching a peak in 2006, a lag time of nearly five years
after the official end of the recession. You will also note that the number of SNAP participants after the 2001 recession remained at an elevated level right up to the beginning of the Great Recession meaning that the program entered the 2008 recession with a higher number of participants than normal.

Here
is a graph from the report showing past and future SNAP spending projections:

Spending
on SNAP benefits rose by 140 percent in both nominal and inflation-corrected
dollars between 2007 and 2011 from $30 billion to $72 billion with most of the
growth related to an increase in the number of participants as I noted above. Over
that five year period, the number of participants grew by 70 percent while the
spending on benefits grew by an even greater 135 percent. As you can see
on the graph above, spending on SNAP is projected to fall very slowly by the
end of fiscal 2014, however, the number of people receiving benefits will still
be high compared to historical numbers because of growth in the U.S.
population. Total federal spending on SNAP will peak at $82 billion in
fiscal 2013 and will gradually fall thereafter. Even with long-term
improvements in the economy and no intervening recessions (an extremely
unlikely scenario), the CBO projects that 34 million people or one in ten
Americans will still be enrolled in SNAP in 2022, the same share of the
population that was enrolled in 2008.

In my humble opinion, the statistics from this report are
both illuminating and more than a bit frightening. SNAP statistics from 2011 show
that the so-called end of the last recession has not been experienced by one in
seven Americans. The official end of the Great Recession according to the
Federal Reserve was June 2009; we are now 3 years into the
"recovery" and the number of SNAP recipients and federal government
expenditures on the program are not expected to fall until fiscal 2014 which
starts in 18 months and even then, the drop in spending on SNAP is minimal. That means that once again, the lag time between the
end of the recession and the beginning of the drop in expenditures will be a
rather lengthy five plus years. By that time, if history is an indication of
what the future holds, we could well be into the next recession meaning that we
will starting from a much higher base level than was evident during past
recessions just as I noted for the recovery after the 2001 recession. Since the CBO does not appear to include another recession in their
expenditure projections, this means that future federal expenditures on SNAP will
likely be far higher than projected; just as Washington is looking in
desperation for the ever-elusive concept of fiscal balance, record numbers of
Americans will likely require a hand up.

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About Me

I have been an avid follower of the world's political and economic scene since the great gold rush of 1979 - 1980 when it seemed that the world's economic system was on the verge of collapse. I am most concerned about the mounting level of government debt and the lack of political will to solve the problem. Actions need to be taken sooner rather than later when demographic issues will make solutions far more difficult. As a geoscientist, I am also concerned about the world's energy future; as we reach peak cheap oil, we need to find viable long-term solutions to what will ultimately become a supply-demand imbalance.